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tv   The Stream  Al Jazeera  January 24, 2014 7:30pm-8:01pm EST

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>> hi, i'm lisa fletcher and you're in "the stream." america's greece, $87 billion in debt of the what went wrong in and is federal bailout the answer? >> our producer, raja is here, and raj, a lot of people are surprised about this enormous economic crisis in puerto rico, and how it's affects are affecting the u.s. >> reporter: our digital
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producer always tells us that puerto ricans are citizens, and most americans don't know: who to blame for the problem? >> if only it was, and a lot of corporations are leaving puerto rico. and it's something that we'll talk about in the show. the nations eyes are focused on economic implosions like detroit and sacramento, but something is brewing in the american territory of puerto rico, where $87 billion in debt is hovering over a population about the size
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of los angeles. in puerto rico, only 41% of the people that can work do. by comparison, that number is more than 60% on the mainland. with so much debt, comes desperation, and the u.s. territory is trying everything that it can to get back on track. one of the ways it's doing that is by reforming teacher's pensions, a move that caused outrage on the island. but the president says tough times require tough measures. [ speaking spanish ] ed move sparked strikes by nearly 90% of the island's teachers. and activist, ayala, said that it will drive people deeper into poverty. [ speaking spanish ]
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>> how to get to this point and what role, if any, should the u.s. government have in getting the islands back on track? joining us onset, juan, policy on latin america, and sylvia, cofounder, an incubator for entrepreneurs, and the american teacher's federation, working to amend pension reforms. we also reached out to several members of puerto rico's government, including the president, and he and others declined to appear on the program. so welcome to "the stream." a lot of interesting parallels between detroit. when you look at what's going
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on, you have five times the population, and five times the detect. what's happening in puerto rico and how does it compare to these cities like sacramento and detroit in the u.s.? >> you have a broken government. and the government in puerto rico is overin debted. 90% of the debt. and this is a crisis than been brewing for a while. and it exploded in 2006. it has been eight years since puerto rico has been contracting it. it has been discouraging, and one-tenth of the population has left the island in the last eight years. only 41% of the population are working, and the unemployment is the highest in the united states. let's remember that puerto rico is part of the united states. youth unemployment is about 30%,
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and also, we see crime on the rise. 27 murders per 100,000. higher than mexico and the dominican republic, and five times higher than the mainland. they have all of the problems that you can imagine, and thus, i think that the solutions are necessarily going to be extremely tough. and that's why we see these problems facing them. facing the same resistance, and now the same problems. unless politicians actually, you know, like open up and do the required reforms, we're going to continue to see puerto rico. >> these are big problems. like detroit, they made some big promises pensions, and detroit's problem is that the pensions are unfunded, and puerto rico's problem is it has bonds that it can no longer pay out on. explain how critical the bond
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component is to the economic situation in puerto rico right now? >> let's put it this way. only 41% of the people who can work actually work, and out of those, one-third work in the government and they receive generous pensions and benefits. and thus, the government in puerto rico has been getting in debt, more and more in debt, and now, the credit rating has been downgraded several times, and now it's only one notch above junk status. so puerto rico down to junk stated us any time. and when that happens, a lot of people are going to lose confidence in puerto rico's ability to pay debts, and we might see the island going into default and that will be the first. and a lot of people will be watching what happens in that case. >> a lot of people are responding on twitter:
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hugo delgado, you are a high school teacher in puerto rico, and who is responsible for this crisis? >> it has been going for a long time. a lot of politicians fear puerto rico, and cooperations out of puerto rico, it $80 billion in the last eight years, and meanwhile, they only pay $35 billion in taxes. so they make a huge amount of profit, and the people in puerto
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rico are seeing low wages. the social situations are really bad right now. >> kind of explain the scope of the crisis to us. how bad is it on the ground? >> well, for us, puerto rico is truly a tax incentive as a great place to work. so from an entrepreneur's perspective, we are really doing everything that we can to strengthen the system here. >> we're going to talk when that later. because you're doing very innovative things there to spur the economy, and you have a great group of entrepreneurs around you, but outside of that group, what are you seeing? >> well, lisa, let me tell you one thing. when there's economic gain, there's great opportunity. and entrepreneurship flourishes, all types. and we'll see because of this crisis, more lifestyle
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entrepreneurs and out of pure necessarily, they need to have their own businesses, and we'll also see high growth potential ventures coming up, and those are the ones that really drive economic value. those are the ones that we're betting on the. >> juan, at the top of the show, you mentioned crime and the welfare system. >> a couple of years ago the federal reserve pointed out that the broken market in puerto rico, why only 41% of the people that can work do? they pointed out two reasons. one of them is the high minimum wage. as puerto rico being part of the united states has the same minimum wage as the mainland. but the per capita is only half of the state of mississippi.
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for income level in puerto rico, the average minimum page is $15,000 a year, whereas the per capita income is about $60,000 a year. so that means that having that disproportionately high minimum wage discourages employment among the youth. >> because the welfare check is great in puerto rico. >> and welfare, that's the other point that the paper makes. welfare payments are tied to income levels in the mainland. and puerto rico with just half of the income of the poorest state in the union, that means that a lot are eligible for welfare and one-third actually receive welfare at a level that discourages them from looking for work. >> puerto rico's senate has approved measures for the island to take on new loans, but is this the best solution with the
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$87 billion debt looming. if you're tweeting us right now, if you are, look behind me.
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♪ >> protestors shouting this fight will continue, no matter what happens in response to planned pension reforms in puerto rico, which have been the most controversial move that the government has made in an effort to get the island back on track. juan, what is the government's game plan at this point to get the government out of debt? >> well, fortuño, when he came
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into power in 2009, one of the first things he did was fire 30,000 public employees, and he lost the election, pedilla came to power promising not to inflict pain on the puerto rico population through aus territory. austerity. but we see that it has come to padilla. the tough fights with the unions, with the teacher's unions for tough reforms to the pensions. and we have seen that in ohio and the united states. i think that eventually, puertoo ricans will see the need for these reforms. and it was weak according to what needs to be done. puerto ricos need to think about getting rid of public utilities,
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and privatize. it's a bad word in puerto rico, but somebody has to say it, and they have to shrink the size of the government. they have a very expensive government that needs to be cut down in size, and it's going bankrupt like we have seen in other parts of the world. >> well, our community has picked up on this fight, if you will, between the government and the teachers, and those who are the pensioners. monica says:
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and hugo, i'm going to go to you again. you're a teacher on the protest side of this. and look, everybody has to shoulder some responsibility here to help with the $87 billion debt. do you think that teachers are being made into scapegoats? or the cuts that have been proposed are quite minimal, and do you think that there may be overcomplaining here? >> in puerto rico, the pension fund wasn't bankrupt. they made it into bankruptcy. we had a pension fund, every year up to last year. it was profitable into one that was not -- i don't believe that the teachers should pay for the deficiencies of the rest of the government. it was not a crisis, and it was made into a crisis. and we would like the pence
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system to be turned back into a benefit. >> hug oh, some people are saying that the teachers don't actually have it that bad with this new deal. you're going to get a $300 a month bond fee and you still get to retire at 55, and you get to add into your pension fund. what's wrong with that scenario? >> we're underpaid and overworked, and every teacher is going to receive a reduction to their pension. $500 to $1,000 reduction. there's no increase in the pensions, it's a reduction. and what increases, the pensions a long time ago, $400 in their pensions. so what they're transforming is a pension system within the government of puerto rico. they are dismantling it in order to save money to use that money
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to pay bonds in puerto rico. >> speaking of that in the bonds, juan, puerto rico government made pretty bad decisions, and they sold more bonds to pay for bonds that they couldn't afford and had to pay on. so you understand why people like hugo can sit there and say, why should we trust your decision making now when you've been throwing good money after bad for so long. >> puerto rico is paying the highest interest rates in the municipal bond market. and the fact that their rating is one notch above junk status, the interest rates are going to skyrocket. and the deficit is like $800 million. and they need to cut those interest rates in order to keep paying salaries, and building infrabe structure and so on. so we cannot just like say that oh, we have to stop paying
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interest rates on bonds or we have to lower the amount we're paying on that, because that's the whole game here. if puerto rico wants to remain viable. and if they don't want to fold, they will have to start cutting expenses, because otherwise, the bond market is going to catch them. and we're going to have a situation that argentina faced in 2001, and greece just escaped from that kind of scenario recently. so it's going to be tough. and actually don't see that puerto rico is going to get out of this one. i think there's going to be a debt restructuring process of some type this year or next year. >> our community is asking about the reforms, and one of the reforms.
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and speaking of entrepreneurship and business, sophia, business taxes, puerto rico was seen as a nice haven for multinationals to set up business, and what effect is this going to have on entrepreneurship in a country where only 50% is working, and half of the cooperations left in the past year? >> it will be a reality. and we have it look at the flip side of that. and that means that entrepreneurs who are able to export their products can take advantage of the incentives that we have, and get a tax rate of 4%. so it's not higher taxes for
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everyone. entrepreneurs here and those we are able to attract can take advantage of world class tax incentives. >> there's a report that the underground economy in puerto rico is $20 billion here, and how much of this flow of money is going untaxed? >> that's the point. one of the problems in puerto rico, the regulations, through a weak rule of law. and that creates incentives for a black market economy. and yes, if you have a sizeable chunk of your gnp that is underground, it doesn't help. when you have a debt crisis, you have two ways to solve it. one is cutting spending and the other is increasing revenue. the problem with increasing revenue, the taxable base is shrinking.
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people are leaving. one-tenth of the population left in the last decade, the talented and the entrepreneurs and the people who are there mostly don't work. they have benefits or leaving in the public sector, so if you increase taxes on those who stay, those will have to go up dramatically, and puert puerto s can't bear that. and companies will leave the island and go to where they face a more competitive tax rate. that's something that the authorities have to deal with. if they tax corporations too heavily, they will move to another place. >> they have left or are in the process of leaving -- four major pharmaceutical companies in puerto rico. when the news broke, the senate chamber was overrun, mostly with teachers
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interrupting that vote. look at this before we hit the break. [ chanting ] the interesting thing about that --
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>> welcome back, we're talking about puerto rico's $87 billion economic crisis. juan carlos, the government has to come up with $700 million in payments by june, and how is that going to happen? >> it's going to be extremely difficult. and again, i think that tough decisions, when it comes to spending, have to be innate in the upcoming months or weeks, and i honestly don't think there's going to be a way out of this without debt restructuring. maybe the "b" word is not going
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to be used. as they did in greece, they didn't talk about that, but there's going to be between puerto rico and its creditors because the amount of debt is too high. and when puerto rico's credit status is reduced to junk, then interest rates are going to sky rock he want more >> so like the states, the puerto rico as a territory can not declare bankruptcy, and is there any precedency for sovereign debt relief? >> argentina went into default in 2001, and i think it was $93 billion, and argentina went into negotiations with its creditors, and some of that is going on in the u.s. courts. we might see that with puerto rico, but certainly, i don't think there's a precedent within
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the united states of a state going into bankruptcy. we have seen the cities like detroit. and san bernardino, california. and some think that they're going to bail out puerto rico, and the white house talked about that a couple of weeks ago, and i don't see it happening because they don't want to start a precedent. >precedent. the community says: i think that forget that puerto rico is a territory of the united states:
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hugo, you're in puerto rico. what should the united states do if puerto rico defaults? >> well, i think that we have a solution. take 1% and use it to solve the system, that's the idea that we have. an increase in the tax on those corporations, we will see solutions. >> any ways that you see of incorporating more citizens into the workforce? given the way the system is set upright now it really works against it in. >> yes, he said something previously that has some truth to it. the fact that the some of the problems are related to puerto rico's stat with us the united states. i think that they should
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negotiate the minimum wage, and that's going to be tremendously unpopular. the one who goes to government to ask for a higher minimum wage lower benefits, is probably going to be voted out in the next election. but that has to be done because you will create incentives for people to start working. and that's one of the problem we have. if you incorporate more people into the labor force and they start creating taxes, you have to cut spending, and you have to get rid of public companies, and privatize again, and you have to cut the size of the public sector, and you have to tackle these reforms when it comes to pensions and so on, and yes, finally, you need tax reform, but again, if you tax corporations too high, they're just going to leave the island. >> thank you to all of our guests, juan carlos, and sophia,
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and hugo delgado. see you online. >> good evening everyone. welcome to al jazeera america. i'm john siegenthaler in new york. kiev in flames. antigovernment protests spreading to nearly half the country. government offices seized as ukraine's government promises to restore stability. violence in egypt, a new round of bombings on the even of the third anniversary of the egyptian revolution. desperation in syria. a baby pulled alive from the rubble of aleppo. as


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